AOL UK and Wal-Mart: This Time We're Serious

LONDON (08/09/2000) - With considerably less fanfare than they brought to the announcement of a similar deal in the U.S., America Online Inc. and Wal-Mart Stores Inc. announced Wednesday that they have extended their mega-marketing alliance to Europe. But the question remains: Will it be a replay of the much-hyped, and still unseen, multimillion-dollar deal the two companies made last January?Officials from AOL UK and ASDA, the Wal-Mart Europe unit, are vowing that this one will be different. Officials from both AOL UK and ASDA said the marketing pact would go into effect in the next two months.

After eight months, there's still no sign of fruit from the marketing pact AOL and Wal-Mart reached in the U.S. in January. That one is expected to involve the customary promotion within AOL and a discounted ISP for Wal-Mart customers.

But what was originally supposed to be implemented within a few months' time has dragged on; neither side is sure when the venture will make its debut.

The deal announced today is more complicated than the one made in January. It includes a third player: the European comparison-shopping site

AOL UK and Wal-Mart's ASDA unit would take a minority stake in Shopsmart, ASDA paying for a 14 percent chunk and AOL UK scoring 8.5 percent. In exchange, AOL UK and each of ASDA's 240 retail locations would promote Shopsmart. Neither party would disclose the value of the investment, but analysts reportedly have valued Shopsmart, which operates in the U.K., Germany and Sweden, at US$150 million. Daniel Gestetner, Shopsmart's CEO, declined to address the value of his company.

ASDA would also fold Valuemad, a modest rival to Shopsmart, into its larger competitor.

Gestetner said officials from Wal-Mart Europe approached him six months ago when they were considering whether to beef up their investment in Valuemad or sell it to a competitor. "They decided they wanted to work with us rather than against us," he said. But that didn't make things simple. The discussions, though sporadic at times, dragged on for months as the three companies dickered about the terms. "Whenever you tie up the world's biggest retailer and the world's biggest ISP, it's incredibly complicated," he said.

The centerpiece of the alliance between AOL UK and Wal-Mart Europe is a co-branded ISP. Disks carrying the ASDA name will be distributed at ASDA stores in the hopes that some of customers will become AOL customers, too. In addition, AOL UK's shopping area will promote ASDA.

Besides the existence of a third party, there are other differences between this announcement and the one AOL and Wal-Mart made last January. The U.S. deal calls for AOL to customize a low-cost ISP with a simpler interface that would be less intimidating for Wal-Mart customers. At the time, the deal was hailed as a landmark in retailing. However, eight months later, there is no word on when the ISP will launch or even when Wal-Mart will find itself linked to the AOL shopping site, a virtual ghetto that contains a list of more than 300 other retailers.

Shortly after the January announcement, Wal-Mart announced it would spin off its online unit and staff it up on the U.S. West Coast. A few days later, AOL announced it would buy Time Warner. Both developments contributed to the delay.

Those issues won't be a factor in Europe, an AOL official says. "As far as what has happened there, that's there. This is different," says Jane Marrinan, an AOL UK spokeswoman. "We're totally confident about it."Such deals are not virgin territory for AOL UK. Last month the company announced a similar promotion to distribute co-branded startup disks with deliveries of Domino's Pizza in the U.K.

Wal-Mart's stock was down by 5.3 percent in midday trading, primarily because it hit, but did not exceed, Wall Street estimates for its second-quarter earnings.

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